CHUX – NEW LEADERSHIP

O’Charley’s announced today that it named Philip J. Hickey Jr., the former CEO of RARE Hospitality International, to its Board of Directors. Mr. Hickey’s appointment was recommended by Crescendo Partners, CHUX’s largest shareholder, pursuant to an agreement Crescendo Partners entered into with CHUX in December. Mr. Hickey was the CEO of RARE Hospitality when it was acquired by DRI in October 2007 for about 10x NTM EBITDA, a significant premium to the FSR group’s current average 5.9x multiple and to the group’s 5x multiple for the better part of 2008. Mr. Hickey was instrumental in selling RARE at a 39% premium to the company’s stock price prior to the announcement of the acquisition in August 2007 before FSR stock prices declined an average of 48% in 2008. Making this appointment more interesting is the fact that Crescendo Partners has engaged in discussions in the past with certain members of CHUX’s senior management regarding “various strategic alternatives to maximize shareholder value, including (i) a significant repurchase of shares, (ii) the sale-leaseback of [CHUX’s] real estate assets, (iii) a sale of [CHUX’s] Stoney River restaurant concept, (iv) the refranchising of company-owned restaurants in under-penetrated markets and (v) the outright sale of [CHUX].” Relative to these alternatives, Crescendo Partners’ choosing Mr. Hickey as its Board appointee signals that CHUX’s largest shareholder is pushing for real change, including a possible sale of the company.
Mr. Hickey’s appointment comes only two weeks after CHUX announced the retirement of its Chairman and CEO Gregory Burns. The company’s Board of Directors is currently undergoing a nationwide search for his replacement. CHUX has underperformed its FSR competitors in recent times with EBIT margins down over 560 bps since the end of FY06 to -0.3% in its most recently reported quarter. Over that same time period, the company has increased its leverage from about 3.4x to over 4.5x on a debt/EBITDAR basis (more than the FSR group’s average of about 4.2x). That being said, new leadership in both the CEO position and at the Board level should prove favorable.